Discussions around the MedTech industry climate were quite positive at the J.P. Morgan conference in San Francisco last month. Here are my top takeaways:
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- For several years, many investors were shying away from investments in medical devices. I heard a number of comments stating that investment in MedDevices is up. This is good news for many of our clients looking to develop innovative new products.
PiperJaffray’s report: Public Markets Overview seems to confirm this trend with both M&A volume and value trending up.
Bruce C. Robertson, Ph.D., Managing Director of H.I.G. Capital, noted that from 2012 to today there has been very little money for early-stage MedTech companies. Some of the companies that hung in there through that period have matured and are now being viewed as worthy of another look. However, the supply of those mature startups is dwindling. Some large Strategics are incentivizing their business units around M&A deals. Both of these factors are contributing to increased M&A activity and valuation in MedTech.
- It is estimated that the ‘equity roll’ has almost doubled over the last five years. It seems like an encouraging sign both to the market, and potential investors. Rollover equity for Private Equity Deals arises when certain equity holders in the target company, including founders, and key members of the management team, roll a portion of their ownership stake over into the new equity capital structure in lieu of receiving cash proceeds. This indicates optimism in future growth by key stakeholders.
- The reimbursement landscape is getting better for innovative Diagnostics (Dx) Tests, bringing investors back to Dx startups. Several years ago, reimbursement for diagnostics tests became an issue as diagnostic systems were developed to provide complex labs tests on a single panel. This created confusion for payers. Reimbursement is now focused on analyte-specific codes, providing unique test identifiers for non-specific tests, rather than bundled payments.