Life Sciences IPO Boom Leaves Out Medical Devices (WSJ Blogs)
Biotechnology startups have stampeded to the public markets this year, but their colleagues in the medical device field have sat quietly on the sidelines.
So far this year, 27 venture-backed biopharmaceutical companies have gone public, compared to just one medical device company, according to industry tracker Dow Jones VentureSource.
While biopharmas generally go public in greater numbers than medical device companies, the spread has never been this great–in 2007, for example, 19 biopharmas went public, compared to 10 medical device companies, a more representative ratio.
Dating back to 1992, biopharma IPO frequency has ranged from roughly equal to that of medical devices, to double or triple the rate in some years. The biggest spread was in 2000, at the height of the last IPO boom, when 46 biopharmas went public, compared to nine medical device companies.
So could there come a day when people talk about a medical-device IPO boom the way they talk about the biotech boom of today?
Investors in medical devices say yes, that day could come–but a lot of stars will have to line up before it happens.
“I’m optimistic that you can have the same type of thing in devices, but you won’t see the same numbers, or the same amount of money going in or the same number of acquirers” spurring the action, said Mike Carusi, a longtime device investor with Advanced Technology Ventures.
Mr. Carusi has had a number of device investments turn into public companies, and a number of others snapped up by larger companies, including portfolio company Ardian Inc., a hypertension treatment-device developer that was acquired by Medtronic for $800 million in 2011.
Biotech and medical devices are an apples-and-oranges comparison, he said. New drugs are usually perceived as having the potential to serve much larger segments of the population and are seen as more likely to be acquired for a high price even if they have already gone public.
On the other hand, medical devices–which can refer to everything from laser-based surgical tools to implantable stents to imaging machines–are seen as having a relatively limited market.
“Public biotech investors see tremendous market potential for any single product,” he said. “What drives this market activity is the belief that big pharma is hungry for growth.”
While there are several big acquirers of medical devices, they are fewer, and their sales are not generally expected to be as high as in pharma, he said.
Wende Hutton, a health-care investor and general partner at Canaan Partners, said the big acquirers on the device side–the Medtronics and St. Jude Medicals of the world–are facing other pressures that can make their acquiring and funding of startups slower-moving than big pharma companies.
“They’re facing incredible pricing pressures, a different dynamic that’s come about over the last five years,” she said. Under heavy pressure from the insurance companies that reimburse for treatments involving new devices, the larger companies try to limit their new technologies to devices that cost the same or less than comparable devices on the market today, Ms. Hutton said.
Since they are facing payers who will revolt if asked to bankroll a treatment using a more expensive device than what was used in the past, the device companies are often hamstrung when it comes to backing or acquiring new medical devices.
And the public-market investors who keep an IPO boom going know this, she said.
But even though the device sector may never really mirror the biotech side, where pre-clinical, pre-revenue companies can land on the public market based on imagined future prospects, there could still one day be a medical-device IPO boom, the investors said.
Crucial to this, they said, would be a strong perception among public-market investors that devices can fare well on the market, bring in significant revenue and buoy whatever larger company buys or licenses their technology.
“We need a few very strong, revenue-based companies going out there,” Ms. Hutton said.
Mr. Carusi agreed. “Success breeds success,” he said. “We need a couple of IPOs that make money for the public-market investors.…and there are a few companies out there that are just commercializing, they are private and in revenue.
“This is what public-market investors want to see,” he said. “But it probably won’t look just like biotech. The average sales of a leading drug are in the multi-billions of dollars. With devices, it’s more like the multi-hundreds-of-millions.”
Write to Timothy Hay at timothy.hay@wsj.com