Investment in medtech and biotech: Outlook

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:

  1. 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.
  2. Medical devices are becoming increasingly intelligent medical devices, combining “smart” components, human-device interfaces, integration of AI in product development and products.
  3. Medical devices are rarely just “medical devices” anymore, often integrating embedded drugs, bioresorable materials, cell therapy components, etc.
  4. 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
    • Arthritis
    • Burn victims
    • Cardiovascular diseases
  • Diabetes
    • 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
    • Robotics in surgery (advancing, despite costs)
    • Robotic nurses
  • Optogenetics: light modulated nerve cells and neural circuits
  • Gene therapy
    • CRISPR
  • Localized drug delivery
  • Immuno-oncology
    • 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.

 

Medtech fundings in February 2017

Fundings in medical technology for the month of February stand at $148 million, led by the $37 million funding of Entellus Medical, followed by the $26 million funding of Viewray.

Below are the top fundings for the month thus far.

Source: Compiled by MedMarket Diligence, LLC.

For a complete list of fundings for the month, see link, and bookmark this post during February to see additional financings as they occur.

For a historical list of fundings, see link.

Hemostat sales growth and opportunity

Hemostats are normally used in surgical procedures only when conventional bleeding control methods are ineffective or impractical. The hemostat market offers opportunities as customers seek products that better meet their needs. Above and beyond having hemostats that are effective and reliable, additional improvements that clinicians wish to see in hemostat products include:

  • laparoscopy-friendly
  • work regardless of whether the patient is on anticoagulants or not
  • easy to prepare and store, with a long shelf life
  • antimicrobial
  • transparent so that the surgeon continues to have a clear field of view
  • non-toxic
  • preferably not made from human or animal materials.

 

Source: “Worldwide Markets for Medical and Surgical Sealants, Glues, and Hemostats, 2015-2022”; MedMarket Diligence, LLC (Report #S290).

Interventional and Surgical Cardiovascular Procedure Volumes

Cardiovascular diseases (CVDs) are a variety of acute and chronic medical conditions associated with an inability of the cardiovascular system to sustain an adequate blood flow and supply of oxygen and nutrients to organs and tissues of the body. The CVD conditions may be manifested by the obstruction or deformation of arterial and venous pathways, distortion in the electrical conducting and pacing activity of the heart, and impaired pumping function of the heart muscle, or some combination of circulatory, cardiac rhythm, and myocardial disorders.

These diseases are treated via the following surgical and interventional procedures:

  • Coronary artery bypass graft (CABG) surgery;
  • Coronary angioplasty and stenting;
  • Lower extremity arterial bypass surgery;
  • Percutaneous transluminal angioplasty (PTA) with and without bare metal and drug-eluting stenting;
  • Peripheral drug-coated balloon angioplasty;
  • Peripheral atherectomy;
  • Surgical and endovascular aortic aneurysm repair;
  • Vena cava filter placement
  • Endovenous ablation;
  • Mechanical venous thrombectomy;
  • Venous angioplasty and stenting;
  • Carotid endarterectomy;
  • Carotid artery stenting;
  • Cerebral thrombectomy;
  • Cerebral aneurysm and AVM surgical clipping;
  • Cerebral aneurysm and AVM coiling & flow diversion;
  • Left Atrial Appendage closure;
  • Heart valve repair and replacement surgery;
  • Transcatheter valve repair and replacement;
  • Congenital heart defect repair;
  • Percutaneous and surgical placement of temporary and permanent mechanical cardiac support devices;
  • Pacemaker implantation;
  • Implantable cardioverter defibrillator placement;
  • Cardiac resynchronization therapy device placement;
  • Standard SVT & VT ablation; and
  • Transcatheter AFib ablation

In 2016, the cumulative worldwide volume of these procedures is projected to approach 15.05 million surgical and transcatheter interventions. This will include:

  • roughly 4.73 million coronary revascularization procedures via CABG and PCI (or about 31.4% of the total),
  • close to 4 million percutaneous and surgical peripheral artery revascularization procedures (or 26.5% of the total);
  • about 2.12 million cardiac rhythm management procedures via implantable pulse generator placement and arrhythmia ablation (or 14.1% of the total);
  • over 1.65 million CVI, DVT, and PE targeting venous interventions (representing 11.0% of the total);
  • more than 992 thousand surgical and transcatheter heart defect repairs and valvular interventions (or 6.6% of the total);
  • close to 931 thousand acute stroke prophylaxis and treatment procedures (contributing 6.2% of the total);
  • over 374 thousand abdominal and thoracic aortic aneurysm endovascular and surgical repairs (or 2.5% of the total); and
  • almost 254 thousand placements of temporary and permanent mechanical cardiac support devices in bridge to recovery, bridge to transplant, and destination therapy indications (accounting for about 1.7% of total procedure volume).

Below is illustrated the overall global growth for each of the major categories of procedures through 2022.

Source: MedMarket Diligence, LLC; Report #C500.  (Full report available online.)

There is considerable variation in the growth of cardiovascular procedures globally, but most growth is coming out of Asia/Pacific. For example, within the area of venous interventions, the growth in the use of endovenous ablation for chronic venous insufficiency is markedly higher in Asia/Pacific than in other regions, though the U.S. will remain the largest volume of these procedures.

Source: MedMarket Diligence, LLC; Report #C500.  (Full report available online.)


“Global Dynamics of Surgical and Interventional Cardiovascular Procedures, 2015-2022” (Report #C500), published August 2016. See description, table of contents, list of exhibits at link. Available for purchase and download from link.

Forgotten Opportunities: Early Stage Biotech and Medtech Investment

Due to the uncertainty in the development, clinical testing, and regulatory approval of both biotech and medical technologies, which increasingly have to be viewed with the same competitive lens, investors have over the past few years shied away from seed stage or Series A stage company investment in favor of those nearer to market introduction. However, with the advent of a great number of new technologies and advances in the underlying science, there is enormous opportunity to identify companies and emerging sectors arising from these advances. The problem in identifying realistically promising companies is that it must be done so without falling prey to the bad investment practices in the past that ensued from a poor understanding of the technologies and their remaining commercial hurdles. Without careful consideration of remaining scientific development needed, the product’s target market, its competitors, and the sum total of the company’s capabilities to commercialize these technologies, investment in these areas will fall short of investment objectives or fail them outright.

While any of these considerations have the capacity to preempt a successful market introduction, a failure to understand the science behind the product and its remaining development hurdles to commercialization is likely to be the biggest cause of failure.

“We’ve already had one glaring example of a company, and its investors, learning the hard way that health and science advisors are important: Theranos.” (link)

Venture Capital has backed away from early stage investment

Earlier stage investment, with its higher risk, has higher potential reward, so there is a big need for more effective evaluation of potential early stage investments in order to (1) seize these opportunities that will otherwise potentially be lost with the shift to later stage fundings, (2) sort out those companies/technologies with overwhelming commercialization hurdles from those that will profitably tap an opportunity, and (3) gain the value of these opportunities before the innovation appreciates in value, driving up the price of the investment.

The Biotech Bubble

Biotech in the 1980s was enamored with companies pursuing “magic bullets” — technologies that had the potential to cure cancer or heart disease or other conditions with large, untapped or under-treated populations. With few exceptions, these all-in-one-basket efforts were only able achieve a measure of humility in the VCs who had poured volumes of money into them.

Here was evidenced a fundamental problem with biotech at a time when true scientific milestones were being reached, including successes in mapping the human genome: Landmark scientific milestones do not equate with commercial success.

As a result, money fled from biotech as few products could make it to market due to persistent development and FDA hurdles. By the late 1980s, many biotechs saw three quarters of their value disappear.

A Renewed Bubble?

The status of biomedical science and technology, with multiple synergistic developments, will lead to wild speculation and investment, potentially leading to yet another investment bubble. However, there will be advances that can point to real timelines for market introduction that will support investment.

Recent advances, developments and trends supporting emerging therapeutics

  1. Stem cells. A double-edged sword in that these do represent some the biggest therapeutics that will emerge, yet caution is advised since the mechanisms to control stem cells are not always sufficient to prevent their nasty tendency to become carcinogenic.
  2. Drug discovery models, such as using human “organoids” and other cell-based models to test or screen new drugs.
  3. Systems to accelerate the rapid evaluation of hundreds, perhaps, thousands of potential drugs before moving to animal models or preclinicals.
    1. Machine-learning algorithms
    2. Cell/tissue/organ models
    3. Meta-analysis, the practice of analyzing multiple, independently produced clinical data to draw conclusions from the broader dataset.
  4. Cross-discipline science
    1. cell biologists, immunologists, molecular biologists and others have a better understanding of pathology and therapeutics as a result of information sharing; plus BIG DATA (e.g., as part of the “Cancer Moonshot”). Thought leaders have called for collection and harnessing of patient data on a large scale and centralized for use in evaluating treatments for specific patients and cancer types.
    2. Artificial intelligence applied to diagnosis and prescribed therapeutics (e.g., IBM Watson).
    3. Examples of resulting therapies, at a minimum, include multimodal treatment – e.g., radiotherapy and immunotherapy – but more often may be represented in considerably more backend research and testing to identify and develop products with greater specificity, greater efficacy, and lowered risk of complications.
  5. Materials science developments, selected examples:
    1. Scaffolds in tissue engineering
    2. Microgels
    3. Graphene
    4. Polyhedral boranes
    5. Nanometric imprinting on fiber
    6. Knitted muscles to provide power link
    7. 3-D printed skin and more complex organs to come
    8. Orthopedic scaffolds made from electrospun nanofibers
  6. CAR-T (chimeric antigen receptor T cell therapy)
  7. CRISPR/Cas-9. Gene editing
    1. Removal, insertion of individual genes responsible for disease
    2. Potential use for creating chimeras of human and other (e.g., pig) species in order to, for example, use pigs for growing human organs for transplant.
  8. Smart devices: smart biopsy needles, surgical probes to detect cancer margins, artificial pancreas. Devices using information

 

We sum this up with these prerequisites for investment:

Prerequisites for Early Stage Med/Bio Investment

  1. A fully understood and managed gap between scientific advance and commercial reality.
    1. Investment must be tied to specific steps (prototyping, preclinicals, clinicals, physician training, etc.).
  2. A management team qualified in commercializing medtech or biotech products.
    1. CEOs (and/or Chief Medical Officers, Chief Scientific Officers) with medical science backgrounds (MD, PhD) favored over CPAs or even JDs.
  3. Reimbursement strategy pursued as something more than an afterthought
  4. Technology development in sync with end-user acceptance and training to leverage the benefits:
    1. Easier to use
    2. Fewer complications
    3. Attractive physician revenue streams
  5. Broad competitive advantage pursued:
    1. Product benefits must stand up against all competition, irrespective of technology type (devices competing with drugs, biotech).
    2. Benefits of reducing the cost of care for an existing patient population are paramount.
    3. Competitive advantage must consider the trend in technology development to avoid being disrupted by other products soon to reach the market.
  6. Predefined exit strategy; selected examples:
    1. Positioning to add innovation to a mid-cap or large-cap medtech or biotech as acquirers.
    2. Development of platform technologies for licensing or sale.
    3. IPO

 

Future investments are likely to track the historical focus on specific diseases and conditions:

Source: MedMarket Diligence, LLC and Emerging Therapeutic Company Investment and Deal Trends; Biotechnology Innovation Organization.


MedMarket Diligence, mediligence.com, tracks medical and biotechnology development to provide meaningful insights for manufacturers, investors, and other stakeholders.

High strength medical and surgical glues, growth to 2022

High strength medical and surgical glues currently command a $1.2 billion market that will grow to $1.7 billion by 2022, representing a 6.4% compound annual growth rate. More importantly, however, is that during this time frame the market will undergo steady shifts, including the regional representation, with growth slowing in western markets relative to Asia-Pacific and the rest of the world.

Below is illustrated the size versus growth of high strength glues in the U.S., Western Europe, Asia-Pacific and Rest of World.

Source: MedMarket Diligence, LLC; Report #S290. Order online.

The resulting differential growth over this period will result in a shift in the regional market balance, as shown below.

Source: MedMarket Diligence, LLC; Report #S290. Order online.

Source: MedMarket Diligence, LLC; Report #S290. Order online.

Peripheral Stenting Procedures and Markets

First introduced about two decades ago as a bailout technique for suboptimal or failed iliac angioplasty, peripheral vascular stenting gradually emerged as a valuable and versatile tool for a variety of primary and adjuvant applications outside the domain of coronary and cerebral vasculature.  Today, peripheral vascular stenting techniques are commonly employed in the management of the most prevalent occlusive circulatory disorders and other pathologies affecting the abdominal and thoracic aortic tree and lower extremity arterial bed. Stents are also increasingly used in the management of the debilitating conditions like venous outflow obstruction associated with deep venous thrombosis and chronic venous insufficiency.

Notwithstanding a relative maturity of the core technology platforms and somewhat problematic opportunities for conversion to value-adding peripheral drug-eluting systems, peripheral vascular stenting appears to have a significant room for qualitative and quantitative growth both in established and emerging peripheral indications.

Source: MedMarket Diligence, LLC; “Global Market Opportunities in Peripheral Arterial and Venous Stents, Forecast to 2020.” Report #V201. Order online.

 

Market fragmentation and growth, decline in wound management

The market for wound management products — as varied as negative pressure wound therapy, skin grafts, hydrogel dressings, and growth factors — is a sort of free-for-all of offerings designed to accelerate healing, reduce treatment costs, yield better outcomes, or all of these and more. With so many sectors, and with well-established ones tending toward commodity, there can be many competitors, with few having significant market shares. Yet in several areas, quite remarkable growth is still available.  Excluding traditional bandage and dressings, three companies — S&N, Acelity and Mölnlycke — control over half the worldwide market.

Global Advanced Wound Market Market Shares

Source: MedMarket Diligence, LLC; Report #S251. Order online.

Growth is coming in the advanced areas of bioengineered skin, the ever-needed antimicrobials, and the great demand for foam dressings.


Source: MedMarket Diligence, LLC; Report #S251. Order online.

 

Viewed another way, with size and growth mapped relative to each other…

 

Source: MedMarket Diligence, LLC; Report #S251. Order online.

The U.S. remains the biggest consumer of wound management products, and this is not expected to materially change. Europe is seeing relative decline, however, as Asia Pacific demand ramps up:

Source: MedMarket Diligence, LLC; Report #S251. Order online.


The MedMarket Diligence report #S251, “Worldwide Wound Management, Forecast to 2024: Established and Emerging Products, Technologies and Markets in the Americas, Europe, Asia/Pacific and Rest of World,” is detailed at link and is available for purchase and download online

Tracking Medtech Fundings in January 2017

Fundings for medtech in January 2017 stand at over $700 million, led thus far by the $55 million funding of Intuity Medical, the $54 million for Apollo Endosurgery, $50 million debt funding of ConforMIS, and the $50 million funding of Neuropace. Below are the top fundings for the month. For a complete list of fundings (to be updated during the month), see link.



Source: Compiled by MedMarket Diligence, LLC

For a historical list of fundings since 2009, see link.

 

Wound Hemostasis, Closure, and Sealing in the U.S. versus Asia/Pacific, 2015-2022

Sales of sealants, glues, and hemostats projected to 2022 for the U.S. and Asia/Pacific. While these products have had tremendous success in Japan, their sales in the rest of Asia/Pacific have not yet caught up to Japan, let alone to the U.S.

But that is expected to change as the most significant growth in these markets will indeed be coming from China, Korea, Australia, India, and elsewhere in these emerging markets.

Sales of Sealants, Glues, and Hemostats in the
U.S. and Asia/Pacific Markets, 2015-2022

Note: For direct comparative purposes, sales in these markets are shown on the same vertical scale.

Source: MedMarket Diligence, LLC; Report #S290. Available for purchase/download online.