Medical Device Link.

Originally Published MX May/June 2003

BUSINESS NEWS

Best medtech investment opportunities over the next 3–5 years, according to respondents in the recent Oppenheimer/MX poll. Figures subject to rounding. (click to enlarge)

Although many in industry acknowledge that the current climate for medical technology investment is lukewarm at best, the results of a recent poll suggest that the climate will definitely heat up in the coming year—if the U.S. economy stabilizes and moves into its much-expected recovery.

Cosponsored by the law firm of Oppenheimer, Wolff & Donnelly LLP (Minneapolis) and MX, the poll gauged the opinions of about 100 senior executives and venture capitalists with an average of 16 years experience in the medical technology industry. It was conducted during the last two weeks of March among firms from across the United States.

Respondents to the Oppenheimer/MX poll were about evenly divided in their pessimism over current conditions, with 48% characterizing the current climate for investing in medtech start-ups as "cold" and a nearly equal number calling the current climate "warm." Looking into the year ahead, however, more than 80% of respondents said that the medtech investing climate was likely to become "warm," and 14% thought it would be "hot."

The poll follows a major Oppenheimer survey released in November 2002, in which medical technology was identified as the industry sector offering the greatest investment opportunities both over the next 12 months and during the next 3 to 5 years.

In the Oppenheimer/MX poll, a majority of the medtech business executives and investors identified current economic conditions as the biggest barrier to investing in medtech ventures today. Only 10% of the poll's respondents said that the war in Iraq or threats of further terrorism in the United States are having an impact on their decisions to invest in the medtech industry.

Looking a year into the future, however, fewer respondents (39%) believe that the economy will remain the factor posing the greatest threat to investment opportunities in medtech. Instead, respondents cited two other factors that they expect to become leading obstacles to medtech investment: rising healthcare costs (22%), and a lack of interest among venture capitalists to fund medical technology ventures (23%).

"The results of this poll are in line with what our firm is hearing on a daily basis from our numerous medtech clients," says Thomas Letscher, partner and cochair of Oppenheimer's medical technology industry group. "While there is still a wait-and-see attitude—particularly in light of the economy and the war—many company executives and investors are thinking ahead about investment opportunities as well as strategies to take their businesses to the next level."

Forecasting overall growth in 2003, 76% of the respondents said that they expect the medical device industry to grow between 6 and 15% in the coming year. Fewer respondents expressed confidence that growth in the biotechnology and pharmaceutical industries will be quite so robust. Among the Oppenheimer/MX poll respondents, 66% forecast biotechnology industry growth in the range of 6–15%, and only 51% forecast pharmaceutical industry growth in the same range.

Nearly 40% of the survey respondents identified treatments for heart and vascular diseases as the market segment that offers the best investment opportunities over the coming year. Looking ahead to the next 3 to 5 years, the greatest proportion of respondents said the best investing opportunities lie in the human genetics segment (19%) or in heart and vascular disease treatments (19%), followed closely by cancer treatments (16%). Other segments identified as offering promising investment opportunities included urological treatments, orthopedic treatments, and interventional radiology.

Of the respondents to the Oppenheimer/MX survey who are currently investing in medtech ventures, 75% have $5 million or less invested in medtech companies. Within this group, half of the respondents said that they plan to invest up to 25% of their total venture capital in medical technology companies during 2003; 24% said that they will invest 26–50% of their available funds; 21% said they will invest at the 76–100% level.

Among the medical technology company executives who responded to the poll, equal numbers (25%) said that seeking to be acquired by another medtech company and seeking additional venture capital are the best strategies for growing their businesses. Another 21% of respondents said that acquiring the technology or product lines of another company offered the best strategy. By contrast, seeking an initial public offering ranked as one of the least likely growth strategies.

Geographically speaking, poll respondents ranked the following areas as the top five markets for medtech investment opportunities (in descending order): Minneapolis–St. Paul (Medical Alley), Southern California (each 25%), Boston, San Jose (Silicon Valley), and the Baltimore–Washington, DC, corridor (each 18%).

To request a copy of the poll's findings, contact Stephen DuPont at Oppenheimer, Wolff & Donnelly by calling 612/607-7204 or via e-mail at sdupont@oppenheimer.com.

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