In the second quarter of this year, venture capital funding for medtech companies increased slightly to $2.8 billion, up from the first quarter’s $2.5 billion, according to a new report from Pitchbook. These quarterly totals are still well below the amount of capital being poured into the sector in 2021 and early 2022. Still, the modest uptick represents a slow return to a more normalized level of funding, the report said.
Pitchbook’s analysts believe that medtech funding reached its low point in the first quarter but will slowly pick back up over the rest of 2023. They noted that this year’s medtech funding total will not come close to the $19.7 billion the sector raised in 2021, and it might even be lower than last year’s funding total of $13.5 billion.
Even though things may be moving slowly in the medtech venture capital world, they’re headed in the right direction, the report pointed out.
Both deal value and deal count increased in the second quarter of this year, and there was also a wider variety of medtech categories snagging large deals. For example, surgical robotics startup Distalmotion, cancer care company Apactron Particle Equipment and neurostimulation firm Saluda Medical all closed funding rounds worth $100 million or more.
Additionally, investors are showing greater interest this year in medtech companies focusing on smart implants, precision medicine, remote tools for long-term care and post-acute monitoring, the report said.
So far in 2023, the most active venture capital investor in the medtech field is the Maryland Technology Development Corporation, which has made six investments. Several investors have made five deals this year, including ShangBay Capital, SOSV, New Enterprise Associates and the European Innovation Council Fund.
One of the greatest uncertainties facing the medtech sector this year has been whether or not elective surgeries will reach their pre-pandemic levels. The report pointed out that there is good news on this front — analysts reported a 115% jump in Google searches for elective surgeries compared to pre-pandemic levels. Moreover, payers are reporting rising levels of surgical utilization, which has led some large medtech companies to raise their sales guidance for 2023, according to the report.
The report showed that companies making surgical devices and tools have raked in $2.3 billion in venture capital funding during the first half of 2023 — which is tracking ahead of 2022 deal value in the same subsector.
The report noted that while medtech hasn’t historically been an M&A-heavy sector, the number of deals the industry has seen has been unusually low in recent quarters — likely due to economic uncertainty and the industry’s focus on cost containment. However, M&A activity seemed to pick up in the second quarter of this year. Two key examples of this are Quest Diagnostics’ $450 million purchase of liquid biopsy maker Haystack Oncology and Medtronic’s $738 million acquisition of insulin patch maker EOFlow.
Now that some incumbents have announced their M&A plans, the medtech sector will probably see more large companies using their accumulated capital for growth via spin-outs and spin-offs, the report predicted.
However, these large firms will have to watch out for an antitrust crackdown. The medtech sector recently saw two major deals dissolve as a result of regulatory concerns — Boston Scientific’s plan to secure a majority stake in M.I. Tech and Cooper Companies’ planned acquisition of Cook Medical’s reproductive health unit.
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