Report shows shift in medical device funding strategies

The methods of raising funding for developing medical and scientific technology have changed significantly due to the recession, according to a new report by Ernst & Young.

The report indicates that companies are reevaluating their financial structures and operations because venture capitalists – which have long been a crucial source of financing for medical technology firms – are growing increasingly tentative about the sector.

The head of Ernst & Young’s global life sciences practice, Glen Giovannetti, said that young companies are struggling to obtain financing, hindering the emerging companies and forcing the development of new financing and sales structures.

“Young companies are really struggling to get financial deals,” Giovannetti said. “There is less dry powder ready to be deployed in the coming years than in the last cycle.”

European and US medical technology firms saw $4.34 billion invested in them by venture capitalists in the 12 months to June 2012, which is up from the $4.03 billion of the year to June 2011, but far below the $5.40 billion peak seen in 2006-07.

Giovannetti said that companies are now having to prove that their work could improve health outcomes and reduce payer costs in order to obtain funding. He explained, “The net effect is there is a higher bar being placed on the kinds of deals to back with an investment.”

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