Medical Device Link.

Such regions use these elements to achieve critical mass and sustain momentum (see Tables I–VIII). Lesser-performing regions usually lack one or more of these elements, but can certainly raise their stature by acquiring or developing them. In recent years, areas such as Seattle, Minneapolis, North Carolina's Research Triangle Park, and parts of the Midwest have shown considerable promise in their quests to become venture investment hubs for medical technology companies.

Challenges to Investment

Despite the promising national outlook, the medical technology industry still faces a number of challenges.

Regulation. Regulation by FDA remains a fact of life. Although few would dispute the importance of FDA's role in ensuring patient safety, the medical technology community continues to seek a more efficient and effective path to regulatory approval. The recent implementation of user fees for medical device market clearance is a step in the right direction, as many industry stakeholders hope that the additional funding will enable FDA to rationalize its process further. Regulatory consistency is vital to a small company's development and go-to-market strategies.

Reimbursement. As one of the largest and most influential payers in the marketplace, the Centers for Medicare and Medicaid Services (Baltimore) can affect the success of a company dramatically through its decisions regarding which technological innovations it will pay for and which it may not.

For smaller companies, group purchasing organizations have exacerbated the channel challenges encountered as they launch new products. These large buyers have significant influence over which products reach higher sales levels.

Consolidation. Continued consolidation at the top of the medical technology industry will inevitably slow the rapid pace of acquisitions to which the industry has grown accustomed. This may force small companies to remain independent longer, which might increase the need for further financings and drive down overall returns.

Venture capitalists are risk takers—but they are calculated risk takers, and inputs such as reimbursement probability, regulatory clarity, channel access, and the interest of potential acquirers will always drive investment decisions.

Attractive Prospects

Despite numerous challenges, the medical technology industry seems to be hitting its stride at just the right time, as a new wave of innovations is creating a level of excitement in the medical community reminiscent of that generated first by the advent of open-heart surgery and later by the introduction of stents.

Over the past two decades, enormous strides have been made in minimally invasive surgical techniques. This has led to both faster recoveries for patients and lower costs throughout the care chain, as hospital stays have shortened. Additionally, the combination of drugs and devices for treatment, most notably embodied in drug-eluting stents, has become increasingly common, opening the door to a tremendous range of opportunities for patients, doctors, and medical technology companies alike. Finally, emerging areas such as neurostimulation are beginning to revolutionize treatment options for complex neurological conditions such as epilepsy and simple pain management. The effectiveness of such treatments—in which doctors tap into patients' nervous systems, isolate specific nerves, and regulate their impulses—figure to generate significant demand for devices that can handle increasingly complex tasks while at the same time minimizing invasiveness.

In all, the medical technology sector's current health and promising outlook are on track to create value for industry stakeholders and investors for the long term. More importantly, a continued healthy environment for venture investing in these promising medical technology companies will bring innovations to market faster, improving and expanding the treatments available to patients around the globe and vastly enhancing the quality of their lives.