Empowering medical research through investment in technology.

The Medical Technology Industry

Medical technology plays a vital role in delivering safe, effective, and high-quality health care. The industry has developed life-saving and life-enhancing products such as pacemakers, artificial joints, drug-eluting stents, and laparoscopic devices for minimally invasive surgery. Innovations such as micro miniature and remote surgery techniques, DNA-based diagnostics, tissue-engineered organs, life science technologies and biologics are poised to further enhance quality of care. Medical innovation has great potential to synthesize advances in the sciences, bioengineering, biomaterials and genomics to develop technologies that will extend our ability to prevent, diagnose, and treat disease. Further advances will address the world’s current health care challenges, including treating and responding to outbreaks of new infectious diseases, biodefense, and meeting health needs in underdeveloped areas.

The medical technology industry invests heavily in research and development, driven by constant innovation and short product life cycles. The bulk of R&D spending for medical devices and diagnostics comes from private sources.  The industry spends approximately 11% percent of its sales on R&D, higher than any industry except that for pharmaceuticals. Small companies, including many start-ups and highly innovative firms, spend an excess of 300 percent of their revenue on R&D.

Adequate financing is critical to the successful development and commercialization of medical technology. Start-up companies are particularly dependent on capital financing prior to achieving a viable revenue stream. Venture Capital plays a major role in providing early financing.  In the first quarter of 2009, the Life Sciences sector (Biotechnology and Medical Devices combined) experienced a 40 percent decline, from 2008, in terms of dollars and a 31 percent drop in deals with $989 million going into 133 rounds. Investment in Biotechnology fell 46 percent to $577 million in the quarter, while Medical Device investments fell 27 percent to $412 million. Investments in Life Sciences companies represented 33 percent of all investment dollars and 24 percent of all deals in the first quarter, which is in line with historical norms. 

From July, 2007 through 2008,  there were  no fewer than 16  M&A deals carrying a price tag in excess of $1 billion, along with a plethora of other, nine-figure deals. Total M&A activity in 2008 exceeded 20 billion dollars  The IPO market has seen no Medical Technology deals in 2009 and only one med-tech deal in 2008. The med-tech IPO market was strong in 2007, continuing an upward trend seen in 2006 following the significant slump experienced in 2005. There were 38 IPO filings in 2007, 28 of them completed, compared to the 22 IPOs filed and completed in 2006. There were just 14 IPOs in the med-tech arena in 2005.

In total, med-tech and med-tech related firms raised about $2.5 billion in 2007. That compares to a little more than $1 billion raised by the 22 companies reported on in 2006.

The U.S. remains the global leader in innovation in medical technology. The U.S. medical technology industry is the largest producer of medical devices and diagnostics, with production estimated at $120 billion in 2008. Estimates for Life Science technology sales in 2008 are $200 Billion. Further, the U.S. is one of the world’s largest exporters of medical technology, selling to other countries an estimated $30 billion, or about a quarter of total U.S. production. Although the U.S. share of the growing world market declined during the 1980s due to slowed domestic growth, the U.S. share of the world market is currently about 45 percent. Other strengths of the U.S. medical technology market include:

  • Market growth of 15% per year
  • 30% of sales are generated from products that are less than two years old 
  • Medical technologies are less capital intensive and have an exit horizon that is much shorter ( three to five years) than that of pharmaceuticals and biotechnology 
  • Major medical technology companies do not develop new product lines; they aggressively buy smaller firms to fill out their product lines. 
  • 2008 average returns (multiple of investment) via Merger/Acquisition for medical technology were 3.8X compared to .9X 

The medical technology industry is not easy; in fact, seeding medical technology companies is as much a minefield as is investing in the information technology industry. Many of the operational issues necessary to success are esoteric. To avoid failure requires depth and breadth of understanding of markets, insurance reimbursement, U.S. and international patents, FDA and European standards, clinical efforts and results, and positioning. Further, those who wish to be in the field must have the respect of what is, in fact, a small community - - who know or know of one another - - and be able to operate within that community. This is a prerequisite to accessing those who drive the large players.

Ascent has the capability to distinguish from among investment possibilities and find those rare opportunities that can be successful in changing the ways in which serious health issues are addressed, not only benefiting mankind but also earning exceptional returns for investors.  Our vision is to grow a medical technology industry in the Middle East that will support global innovation, including that arising from the Middle East itself, and will enable the Middle East to diversify its industries in order to become less dependent on oil and foster job creation, and in so doing, provide exceptional returns to investors.