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The Orthopaedic Market

Industry Investments Stay Steady, Focus on Established Technologies

Private investment for pre-cleared technologies remained challenging in 2014. ORTHOWORLD reported 42 private funding announcements totaling about $575 million in 2014. That is three fewer announcements that totaled about $60 million more in funding than in 2013. The growth is attributed to larger sums of money secured for product expansion by established companies such as Benvenue Medical, OrthoPediatrics and Conventus Orthopaedics.

The low but steady activity was noted at the 2014 Musculoskeletal New Ventures Conference. Venture capitalists remarked that funding is starting to flow back into healthcare, but biotech, pharma and diagnostics have been the beneficiaries, as opposed to the musculoskeletal space.

When Gary Stevenson, Partner of MB Venture Partners, a host of the event, asked the venture capital roundtable how much funding has disappeared for the musculoskeletal industry since the recession, it provoked the following answers.

Spine Segment Secures Top Funding

Technologies with spine applications comprised almost half of the 40-some private funding announcements in 2014. That trend spilled over to private investments, as can be seen by the list of public offerings that took place in 2014:

  • Amedica raised $13MM
  • Histogenics expected to raise $57.2MM
  • K2M raised $120MM
  • LDR could raise up to $150MM
  • Orthocell raised $7.5MM

“What we’ve seen is that the overall dollars invested in the sector are not hugely down, maybe ten to 20 percent, but the distribution amongst various stages has changed massively—Series A, first round financing is down 70 percent,” said Ryan Drant, General Partner, New Enterprise Associates.

The number of funds investing in the segment has declined by about half, said Kathy Tune, Partner at Thomas McNerney & Partners.

ORTHOKNOW covered the lack of early investors in June 2014, 
“Investors Focused on Growth-state Companies vs. New Technologies.” Orthopaedic companies compete for funding against tech and healthcare companies that produce quicker returns and higher margins on investments. Among the factors restricting investment in the orthopaedic space are a stringent regulatory pathway, cost containment pressures and acquirers’ interest in established technology. A shortened commercialization cycle, consumer interest and collaboration amongst strategic players (i.e., device companies, surgeons, societies, hospitals), is needed to aid investment spillover into orthopaedics.

With all of that in mind, how can companies move from startup to exit, or startup to long-term growth? The experts said that success is found in the mix. Companies must secure capital from several sources: grants, angel investors, corporate investment and venture capital. Also, the defining piece of the successful equation remains the ability to produce truly innovative technology.