Threats to Medtech Entrepreneurship

The medical technology industry came together in Minneapolis in October for the annual convention of AdvaMed. The state of innovation of the industry in total was a major focus of the dialogue. 

Industry veterans have grown accustomed to business cycles with longer pathways to exit. This vital industry has also experienced pressure as venture capital flows into and out of medtech and related healthcare investing in waves. These themes were the focus of “A Future At Risk,” a new study unveiled at AdvaMed 2016.

The study found a number of factors coming together to create an acute threat to medtech innovation. Key findings of the report included:

  • A sharp decline in the number of new medtech start-ups each year, going from around 1,500 annually 30 years ago to around 600 in 2012.
  • The U.S. medtech industry is “graying,” with more than 30 percent of medtech firms at least 25 years old and more than half 16 years old or more.
  • Since the early 1990s venture capital (VC) investment in the industry has gone from about 13 percent of total VC dollars to about 4 percent in recent years.
  • The proportion of VC funds devoted to early stage start-ups – which are dependent on these funds to survive in many cases – has gone from about 10 percent in the early 1990s to only 3 percent in recent years.

That perfect storm – simultaneous declines in both entrepreneurship and early-stage capital – represents a present and future threat to American leadership in the industry, medical innovation and, ultimately, to patients.

The shrinking pool of high-risk capital would not come as a surprise to medtech insiders. What might surprise even the most stalwart medtech professional is the national decline in the rate of new company formation - a decline that has been sustained over two decades. The number of new medtech businesses formed each year has fallen by almost two-thirds, with a stark decline since 2006, to around 600 in 2012 (Figure 03).

It is a state of entrepreneurial development mirrored by an overall drop in early-stage investment. This category of investment has been the highest risk, occurring when companies are new, and have to prove that their concepts are both technically feasible and can hit a market that has a demonstrated need for them. The proportion of venture capital devoted to early stage start-ups declined from 10 percent in 1993 to three percent in 2014 (Figure 08).

Though these combined trends concern the entire medical technology sector, leaders sounded positive about its prospects. Scott Whitaker, AdvaMed’s CEO, said at the report launch, “I remain optimistic about this industry. Ours is an industry of growth and promise.”

Reflecting that optimism, the report concluded with a number of recommendations on priorities for action by both industry and government as partners. Among them, transparency and predictability in the regulatory and reimbursement pathways would bring about significant change in investor sentiment.

Any change that alters the early-stage medical technology landscape will improve the dynamics in the entire sector.

“Start-ups are not only the source of so many new treatments and cures,” offered Nadim Yared, president and CEO, CVRx and AdvaMed chair-elect, “but also drive job growth and provide new avenues of expansion for the larger medtech players through mergers and licensing. Anything that impacts these smaller companies has a ripple effect throughout the entire medtech ecosystem.”

Support for this project was provided by AdvaMed Accel.

To continue reading and download the report, please CLICK HERE.