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Is the wait over for MedTech Investment and M&A? Not yet...

By Ilsa Webeck, Managing Director at MedTech Strategies


Cautious optimism was felt in the room of over 100 attendees at the New England Healthcare Executive Network (NEHEN) session on December 4, 2023. A lively discussion on the current trends in financing in the healthcare sector raised some interesting pressures and challenges as well as potential for light at the end of a dark financing tunnel. The dynamics surrounding financing and mergers and acquisitions are still under significant challenges as the world recovers from the COVID pandemic and panel moderator and CEO Alira Health, Gabriele Brambilla, opened the discussion with some eye-opening statistics.


Mr. Brambilla shared that medtech has seen a slash in public market activity, with no companies completing an initial public offering (IPO) in 2022 and almost none in 2023. Biotech is doing a bit better, but it's still not great. In 2021, about 100 biotech companies completed an IPO, but that dropped to 20 in both 2022 and 2023. That being said, Mr. Brambilla indicated that capital investment has been at similar levels in 2019 and 2020, but the number of deals is about one-third of what it was in the past. About 95% of the money is going to follow-on investments and convertible notes, a mechanism to allow investors to continue to support their own companies without moving to new pricing rounds. He added that given these dynamics, “If you are looking for funding as a new platform in Medtech, it is a tough place to be. Those companies moving to IPO are doing so with micro capitalizations in the $10-30 million ranges, which are much smaller than we have seen before.”


Next, he turned to merger and acquisition (M&A) dynamics. In medtech, the number of M&As in 2023 is the lowest in the last 10 years. “Interestingly enough,” he says, “the valuations were very similar to what we have seen in 2019-2020, but just for far fewer deals.”  He then asked the panel that even with total investments at the lowest levels in 10 years, venture organizations raising money that is ready to deploy, and a market offering some good deals, why are we not seeing investments? What is making investors wait?


Sean Cheng, Managing Director at Ascension Ventures, opens the discussion with his theories. As a strategic investment arm at Ascension Healthcare, they look to invest to benefit their Limited Partners (LP), a pool of over 400 acute care hospitals that deliver low-cost, high-value healthcare. “Our CFOs are focused on cash preservation as well as managing debt, as many are still wary of further downturns in the market.” He indicated that his LPs are critical not only of the clinical fit of new products but also by potential companies' overall cash and debt positions. They will also consider the time to turn revenue positive with real clinical benefits and cost savings. “We can’t bring in every company that holds reimbursement risk and needs 2-3 years of investment in clinical development. We would rather bring in later-stage companies generating revenue with a lower commercial risk. Unfortunately, there are very few mature, revenue-generating organizations out there, but these will get a premium.”


With the venture firm dynamics, the corporate venture arms might be an excellent stopgap to fill the investment void; however, not many firms out there are geared to do it. But Federico G. M. Mannella, Managing Director at DC Advisors,  sees some ways to make this work. “I have seen some Private Equity (PE) firms make investments or co-investments where multiple players are involved. They will work with someone else to hold a minority stake and over time have the potential to grow their position.”  While they can offer these creative ways to get involved, it still comes down to the numbers. “The key piece is looking at the EBITDA projections, ensuring they are realistic. You can use the same multiples as other deals, but multiples of what? Out of range EBITDA won’t help your valuation.”  Continuing, “we try to balance the EBITDA estimates and the multiples used.”


Mr. Brambilla asked the panelists to provide some practical advice for startups looking for investment right now. Joshua Phillips, Managing Partner at Catalyst Health Ventures, suggested that some firms, like his, take a different look at products. Looking at the regulatory pathway differently than others can prove interesting, for example. “We are more inclined to look at products that need a Pre-Market Approval (PMA). By definition a PMA is needed for something that hasn’t been done before. It is challenging to have a novel product get a 510k.”  While they do invest in companies with 510k pathways, it can be difficult to exit, especially when acquirers are often looking for revenue. “Often, the ‘me-too’ devices must prove market value and revenue to demonstrate the proof of concept. A clinical trial might be less expensive and more defined than the cost to build to $25-$50 million in revenue for a 510k product.”


In summary, Mr. Brambilla supplied a few suggestions for the new year:

1)      Watch for microeconomic trends to see what might affect your pathway.

2)      Be creative and use different channels to develop relationships and adjust your approach.

3)      Focus on clinical evidence and patient impact that might come through a clinical pathway other than 510k.

4)      And of course, never give up!



Ilsa Webeck, Managing Director and Founder of MedTech Strategies LLC (MTS), works with medical technology companies to assess commercial viability and provide structured research methodologies to support due diligence and market intelligence needs of companies of all sizes.  

New England Healthcare Executive Network (NEHEN) is a member-focused community of senior healthcare executives representing  market verticals including medical devices, biotechnology, pharmaceuticals, health IT and healthcare providers.  The members are professionals committed to building relationships, sharing knowledge, and gaining insight into the key issues and opportunities affecting the industry.  


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