Venture capitalists cashed in on investments in medical-device startups in 2021, selling and taking a record number of them public, industry data show.
Globally, medical-device startups—such as developers of robotic-surgery systems or instruments to treat heart disease—staged 24 IPOs last year, the highest number on record, according to Silicon Valley Bank. Acquirers purchased 22 venture-backed device startups in 2021, also a new high, according to SVB.
Medical-device deal-making was below that of the biotechnology industry, where 92 venture-backed startups went public and 14 were acquired in 2021, according to SVB. In biotech, public investors and acquirers are often willing to bet on early-stage companies, but in devices, companies typically must be more mature before becoming serious candidates to go public or be acquired, analysts said.
Investors and acquirers are seeking medical devices that could improve medical procedures and enable more patients to be treated or monitored remotely as the Covid-19 pandemic pressures hospitals, analysts said.
“The more you can ensure that patients stay out of the hospital and have a much more even keel of care, the better it is for the patient, the better it is for the system,” said Jonathan Gertler, managing partner and chief executive of consulting and investment-banking firm Back Bay Life Science Advisors and a managing director of growth-investment firm BioVentures Investors MedTech Funds.
Strong performance from several medical-device IPOs has encouraged more crossover investors to finance late-stage private companies and prepare them for a public offering, said SVB managing director Jonathan Norris. The class of 2018 medical-device IPOs, for example, was still up an average of 197% at the end of 2021, according to the firm.
Companies holding IPOs in recent years often have been fast-growing, revenue-generating businesses such as sleep-apnea device-maker Inspire Medical Systems Inc., which went public in 2018 at $16.00 and now trades around $235.00. Recent IPOs include the September stock-market debut of Procept BioRobotics Corp., a commercial-stage surgical-robotics company.
On the acquisitions front, a growing number of emerging medical-technology companies are joining larger corporate players in the hunt for startups. Major public companies are flush with cash and are seeking to boost their portfolios, said Mark Goldwasser, CEO of Ceros Financial Services Inc., which helps medtech companies raise money through its Ceros Capital Markets arm.
The median total deal value of acquisitions of venture-backed device companies was $268 million in 2021, the highest since the $283 million in 2017, according to SVB.
When the pandemic hit in 2020, many acquirers pulled back due to a decline in elective medical procedures and a focus on treatments for Covid-19, said Bob Lavoie, a managing director and senior partner with Boston Consulting Group. Last year, acquirers returned to action as procedure volumes recovered while demand for technologies to battle Covid-19 persisted, he said.
“There was definitely a Covid-induced freeze in the industry that thawed in 2021,” Mr. Lavoie said.
With Covid-19 cases climbing due to the Omicron variant, the first quarter of this year could once again be challenging for medical-procedure volumes, especially as hospitals confront staffing shortages, said Juliet Bakker, a managing director with healthcare investor Longitude Capital.
Procedures will recover as infections recede, and the outlook for the industry is positive because of the potential for medical devices to fill many unmet medical needs, she added.
“The macro trends for healthcare [are] extremely strong and investors see that it remains a high-growth area of the economy,” Ms. Bakker said.
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