Venture Capitalists Optimistic about European Medtech Sector

Despite predictions of a slowdown, the medical device industry in Europe continues to demonstrate strong progress, racking up a growth rate of 4% per year, in the past 6 years, according to Medtech Europe.

This growth should not come as too much of a surprise. Technological developments in Europe are underpinned by continued government investment in research and science projects, and Europe is also the location of numerous world-class, high-quality academic institutions. Many of modern medicine’s most valuable innovations were born in Europe, including the original stents (followed by drug-release stents), a range of spinal treatment devices, such as spinal implants, and the PET- CT scanner. Moreover, Europe is a much more permissive and attractive market than the U.S. for innovative companies looking to introduce new medical devices, as also noted by John E. Milad, an investment manager at private equity firm NBGI.

The Time is Ripe for VCs

Screen Shot 2016-09-13 at 13.51.12According to Antoine Papiernik, a managing partner of Sofinnova Partners, this may be one of the best times to invest in medtech, particularly in early stage companies: “There aren’t many U.S. venture capitalists (VCs) interested in doing early-stage deals, but that is just one part. There just aren’t many VCs in medtech today.”

Another prominent venture capital firm investing in Europe is Abingworth Venture Management. With over $1 billion under management, Abingworth invests at all stages of development, from start-ups to publicly traded companies, and across all life science sectors.

“We participate in a wide range of opportunities spanning therapeutics, medical devices, diagnostics, instrumentation, and software.  We invest in seed stage projects, technology platforms, preclinical and clinical assets, as well as approved and marketed products” says Abingworth, who typically invests $15 to $30 million in total per company and holds its investment for between three to eight years.

Emertec is an example of a French venture capital firm that is taking advantage of the fact that the European medical technology sector captures more than 30% of the industry’s global sales. Executive, Guillaume Laffineur, focuses on Le Fonds Europeen des Materiaux (FEM), which is the European Venture Fund for Innovative Material Technology. This private-equity investment fund focuses on innovative SMEs (small and medium-sized enterprises) and start-ups in the fields of material technologies, clean technology, and medical technology. Some of the medtech companies Emertec has invested in include Protip Medical, a start-up developing an intralaryngeal implantable device, Defymed, which is creating an artificial pancreas, and iSTAR Medical, a medical device company developing ophthalmic implants for treatment of glaucoma.

Laffineur said: “We don’t invest in the early stage company; we invest in Series B rounds (first in man stage). We look at the project’s team track record and the potential of growth for the company and invest for between four to six years. We become close to the management team and give them advice on all aspects of the business, including recruitment.”

Screen Shot 2016-09-13 at 14.42.45According to Invest Europe, venture capital in European medtech firms is also boosted by U.S. medical technology companies opting to move to Europe.  In Europe, the regulatory approval system is easier to navigate, and the availability of skilled and experienced staff is high. This provides valuable new investment opportunities for Europe’s venture capitalists. Mainstay, for example, moved to Dublin in 2012 after receiving $20 million in finance from a European venture capital syndicate. Mainstay Medical International plc is a medical device company focused on bringing to market an implantable neurostimulation system to treat disabling chronic lower back pain.

Between 2009 and 2011, the dollar amount of capital invested by U.S. venture capital firms in Europe’s start-ups increased by 165%, according to Invest Europe figures. Big names such as Kleiner Perkins Caulfield & Byers, Matrix Partners, Sequoia Capital and Bessemer Venture Partners provided primarily late-stage capital.

Ernst & Young reported that “the medtech industry outperformed the broader market during 2014 and the first half of 2015, largely as a result of investors’ warm feelings towards biotech companies. As a result of this surge in the public equity markets, the window for initial public offerings (IPOs) remained wide-open, enabling 43 U.S. and European companies to list on public exchanges.  Those start-ups raised a cumulative U.S. $2.3 billion, up 57% year-on- year.”

Medtech’s Angels

Screen Shot 2016-09-13 at 14.46.01Twin pressures on the investment dollars available for VCs, both into and out of their funds, have meant other sources of funding have increased, especially for early-stage ventures. “Angels are alive and well,” says Casey McGlynn, who runs the life sciences practice of the U.S. law firm Wilson Sonsini Goodrich and Rosati in Palo Alto, CA.

“At the earlier stages of a company they’re more active in putting more money in than ever before. In many ways the Series A venture financing is now being done by angel investors. To lure a five-star VC firm and build that first syndicate you really need to have a great animal beta, a great prototype, and in some cases even credible human data. We are doing a lot of early-stage work with angels and what you might think of as micro-venture capitalist funds.”

Examples of very early investors, McGlynn says, are Aphelion Capital, X/Seed Capital, and MedFocus Fund. He adds that angel groups include Life Science Angels, Angels Forum, and Bank of Angels.

An alternative approach to medtech funding can be found in crowdfunding.  Crowdfunding now provides the chance to aggregate public funds to provide a vehicle for medtech development (medeuronet has already talked about the phenomenon here).  It’s a new concept, and there are very few crowdfunding sources solely focused on healthcare.  Yet there are a handful of healthcare and medtech sites such as MedFundr, MedStartr, HealthFundr, and B-a-MedFounder.

Building companies that will create European growth

It’s also important to see how strengthening companies affect our society at large. Venture capital plays a vital role in getting companies to this stay and beyond, said the EVCA.  “Europe’s venture capital funds are highly important to the region’s economy,” said Sophie Migart, co-author of an independent study into the impact of venture capital on Europe’s companies, drawn from VICO project data.

A recent research paper by Deutsche Bank found that a rise in venture capital investments of 0.1% of GDP can increase real GDP growth by 0.96% and states that countries with high VC activity typically have stronger economic growth.  The governments of France, Germany and Switzerland, for example, recognize the vital role venture capital plays in their countries’ economic growth, and they are providing attractive environments for VCs to fund start-ups and to flourish.  Many of these countries’ leaders recognize the significant contribution of innovation to overall long-term economic expansion and to their nations’ financial stability – and when it comes to innovation, there can be no doubt that the medtech sector delivers.

 

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