What’s the Future for MedTech Startups? Reasons to Be Worried (and a Ray of Hope)

Graeme Thickins is a 30-year startup consulting veteran as the founder of www.gtamarketing.com.

Living and working here in Minnesota, as I do, you constantly hear about how wonderful our state’s medical technology industry is. After all, we’re the No. 1 Global Medtech Cluster, as I was reminded again at the recent AdvaMed 2016 conference.  We all think we’re sitting on this huge industry that will just keep growing forever and bring bountiful riches to our state. Well, it turns out things are not all that rosy.

At the conference, I learned about a new report, “A Future at Risk: Economic Performance, Entrepreneurship, and Venture Capital in the U.S. Medical Technology Sector.”

Here’s the gist:

"The American medical technology industry has been suffering from a steady decline of entrepreneurship for more than two decades…"

What? Yes, it’s a fact: the numbers associated with this engine of innovation (and jobs) have been declining quite markedly.

We can relate to the medtech startup engine very well here in Minnesota, with our own giant Medtronic having been started by Earl Bakken in a garage in Northeast Minneapolis. I worked for the company early in my career and got to be taken out for a welcome lunch by the man himself.

Two charts from the report, shown here, will surprise many.

StartupDensity-Kauffman.png

Here’s more from the report’s executive summary:

“The (medtech) industry is increasingly concentrated in a shrinking number of large players. All of those companies are scouring the globe for medtech innovation. With fewer startups in the system, the industry’s dominant companies recognize the long-term threat to innovation represented by fewer companies fueling the industry’s pipeline of innovation. All these factors represent a present and future threat to American leadership in the industry, to medical innovation and, ultimately, to patients.”

The key data points of this troubling picture? 

• The number of new medtech firms created each year has fallen by almost two-thirds, from 1,500 annually in the late ‘70s and early ‘80s, to around 600 in 2012.

• The industry is “graying.” More than 30% of medtech firms are at least a quarter century old and more than half are more than 16 years old. This age distribution is typical of a mature rather than a dynamic industry and is markedly older than other high-tech industries or even than businesses in the economy as a whole.

• Medtech’s share of total venture capital has fallen from 13% in 1992 to 4% in 2014.

• Medtech’s share of early-stage venture investment has fallen as well, from 10% in 1993 to 3% in 2014.

• During 2015, declining investor interest in medical devices led to a drop in new company formations, and the majority of Series A rounds were less than $5 million.

For reasons of brevity, I won’t get into the reasons for this decline. Read the report. But you can likely guess the major culprit. And you wouldn’t be incorrect to assume that money is also involved.

Funding for the activities and roundtables that led to the “Future at Risk” report was provided by AdvaMed through its Accel division. The authors of the report also thanked the following organizations that helped make the report possible: MassMedic, Medical Alley Association, Twin Cities Angels, Tech Coast Angels, and Edwards Lifesciences. Two Minnesota organizations there!

So What Can Be Done?

I said I’d mention a ray of hope. At AdvaMed, I learned about one program that’s doing its share to stem the decline of medtech startups getting off the ground and becoming successful. I met and interviewed Paul Grand, the CEO of MedTech Innovator, an organization based in LA that’s been making quite an impact over the past few years to get medtech startups off the ground.

Here’s how it describes itself: “MedTech Innovator is the industry’s global competition and virtual accelerator. Our mission is to accelerate the development of transformative innovations that benefit patients and deliver improved value to the health care system.” It runs an annual competition that helps develop startups and gets them in front of the big industry players — at events like AdvaMed. It conducts its program with sponsorship assistance from Johnson & Johnson, RCT Ventures, Becton Dickinson, Enterprise Ireland, IDA Ireland, the U.S. Small Business Administration, and others. Note in the graphic some of MedTech Innovator’s stats to date.

The event at AdvaMed was hosted by Paul Grand (CEO, MedTech Innovator). The MedTech Innovator judges this year were:

• Daniel Estes, Vice Chair, Mayo Clinic Ventures

• Jennifer Kozak, Vice President, New Business Development, Johnson & Johnson

• Albert Lauritano, Director, Strategic Technology Partnerships, BD

• Tamara St. Claire, Chief Innovation Officer, Xerox Healthcare

The “MedTech Innovator Competition Finals” took place at a breakfast session on the final day of the AdvaMed conference in the large main room. In recent months, twenty semi-finalists had been selected from a field of nearly 500 early-stage companies to take part in the four-month virtual accelerator program. Ultimately, four finalists were selected to compete in the live finals competition on stage at AdvaMed 2016. The conference attendees at this large breakfast session each got to cast their live vote to choose which of the final four would win. The audience vote was the culmination of the entire, year-long competition. Think of it as at the “American Idol” of startup competitions!

A total of $300,000 in prize money was awarded to the finalists, with $200,000 of that going to the overall winner. That winning company was Green Sun Medical of Ft. Collins, Colorado. 

Green Sun Medical was founded to develop innovative treatments to address Adolescent Idiopathic Scoliosis and Kyphosis. It is developing a dynamic orthotic that will aid in correcting these spinal deformities.

Paul Grand encourages Minnesota-based medtech startups to apply for the 2017 competition. Watch the MedTech Innovator web site for an announcement about when applications open!

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NOTES: AdvaMed’s press announcement about the “Future at Risk” report is here.

 

About the AdvaMed Conference

AdvaMed 2016 is the leading medtech conference in North America, bringing more than 1,000 companies together in a uniquely multifaceted environment for business development, capital formation, innovative technology showcasing, world-class educational opportunities, and networking. This year’s event was the first to be held in Minneapolis and attendance was a record at almost 3,000 people.

About AdvaMed Accel

AdvaMed Accel is the division within AdvaMed dedicated to addressing the unique needs and challenges of smaller medical device and diagnostics manufacturers - the lifeblood of the medical technology industry. The only organization of its kind focusing specifically on the needs of the medtech industry’s emerging growth companies, AdvaMed Accel works to create a policy environment more conducive to capital formation and innovation.

 

About MedTech Innovator

The mission of MedTech Innovator is to accelerate the development of transformative innovations that benefit patients and deliver improved value to the health care system. MedTech Innovator 2016 featured twenty semi-finalist companies selected from nearly 500 applications that addressed one or more of the transformative themes identified in a 2016 survey of leading manufacturers and providers. The 2016 program included three competitions: the first was April 13, 2016 at the Innovation in Medtech Summit in Dublin, Ireland; the second was June 24, 2016 at the Wilson Sonsini Annual Medical Device Conference in San Francisco; and it concluded with the finals at AdvaMed 2016 in Minneapolis on October 19, 2016.