At the November 7th MassMEDIC Boston conference on medical devices, a panel suggested that the medical device industry could learn a lot about how to finance early stage development by looking at the bio pharma model. It was posited that the bio tech model was better, in every year studied, in raising Series A funding and in reaching the IPO market. Why?
One reason: the potential rewards are higher. A single successful drug can sell billions of dollars per year. Further, some bio tech inventions create a platform which may provide the basis for a variety of drugs, or the application of the technology to a variety of diseases, thereby providing the potential of greater ultimate return. Another argument, somewhat circular, is that bio deals can exit at an earlier stage, so the investment is de-risked.
The panel then took a swipe at engineers who design medical devices. Engineers always seek perfection. In bio, once you have a molecule that is done, it is ready for the clinic and then to go to market. Engineers are always tinkering with machines. And, you also have to build machines, which is more complex then replicating a successfully designed molecule. (Whether these arguments are accurate or not I cannot say, but they were advanced by the panel.)
Another major problem is that you cannot easily do clinical trials in the United States on medical devices, which creates a problem for investors.
Then there is the issue of being able to scale in order to earn money. There is high capital expenditure, in order to reach scale and lower the cost of goods, when you are building a machine. This is not true, it was contended, with respect to chemicals.
Finally, it was speculated that the robust level of communication between investment bankers and the bio tech community is not echoed in the medical device field. Medical device companies, it was alleged, don’t really reach out to the investment bankers and tell their story.