January 13, 2010

Medtech Deals—Recent Financing Trends

The medtech industry was not immune from the economic woes of 2008 and 2009, and financing opportunities were greatly reduced. In 2008, overall financing for medtech companies in the U.S. dropped 53 percent.

With signs that the economy is beginning to recover, however, there is reason for renewed optimism on the financing front for medtech companies. Following is a review of different types of recent financing activity for medtech companies.

Venture Capital Financing. Venture capital financings held up rather well as compared with other financing options for medtech companies. Venture capital was down 10 percent in 2008 and accounted for 59 percent of all financing options that year, with medtech companies raising $3.6 billion in venture deals.

Unfortunately, 2009 got off to a slow start for venture capital financing, but improved during the later quarters of the year. The first two quarters of 2009 had venture capital financings totaling $356 million and $965 million, respectively. For the first six months of 2009, venture capital financings accounted for 72 percent of the total medtech company financings, with the average venture deal size at about $13.3 million.

The following table provides the total amounts raised by venture capital financing in the calendar quarters indicated and the number of deals in each quarter:


    $ Amount in Millions    

    Number of Deals   

Q1 2008



Q2 2008



Q3 2008



Q4 2008



Q1 2009



Q2 2009



In addition to the numbers above, a report that focuses solely on private emerging company financings indicates private medtech companies were involved in 71 venture capital transactions that raised approximately $617 million in the third quarter of 2009.

IPOs. IPOs in the medtech industry fell 93 percent in 2008 and have been significantly limited during 2009.

Recently completed medtech IPOs include CardioNet Inc. (March 2008) and Minnesota-based AGA Medical Holdings, Inc. (October 2009). In addition, at least 16 medtech companies that were contemplating an IPO have pulled their filings since the beginning of 2008.

The global IPO market, however, has become more active in recent months, and Congress has made health care reform one of its most urgent agenda items. With economic recovery expected to continue in 2010, and assuming legislative debate on health care reform is concluded early in the year, market conditions could soon be more predictable. Medtech companies should then feel comfortable pursuing the IPO route, as they have in the past, as means of raising capital.

Convertible Debt. Convertible debt issuances totaled $63 million for the first half of 2009. These numbers indicate that convertible debt offerings were substantially off pace as compared with the first half of 2008, during which $1.1 billion in offerings were completed. As with most other industries, medtech companies have had difficulty accessing the debt markets during 2009, and the convertible debt financing numbers certainly reflect that difficulty.

Follow-On Public Offerings and PIPEs. Follow-on public offerings and PIPEs were also down in 2008, 44.9 percent and 11.3 percent, respectively. Follow-on public offerings accounted for the second largest funding source for medtech companies in the first half of 2009, making up 18 percent of total funding sources. PIPEs were the third largest funding source and accounted for 7 percent of total medtech company funding sources.

While medtech companies experienced their share of financing challenges during 2008 and 2009, there is reason for optimism as 2010 begins. Venture capital financing for private emerging companies exceeded $600 million in the third quarter of 2009, increasing off of lows that occurred during the first quarter of 2009. Furthermore, various medtech companies have filed registration statements for either underwritten or self-underwritten IPOs.

While sources and costs of capital may remain somewhat constrained due to the reduced overall size of capital markets following the "Great Recession," the national focus on health care reform should help position medtech companies to tap renewed financing resources.

Two publications, Pulse of the Industry—Medical Technology Report 2009, published by Ernst & Young, and MoneyTree™ Report, published by PricewaterhouseCoopers, were the source of the statistics in this article.

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