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Funding

Investors Prioritize Care Delivery, Post-Revenue Companies

By Carolyn LaWell

Extremities, sports medicine, digital health and the hospital supply chain remain attractive areas for orthopaedic innovation, according to investors who spoke during the Musculoskeletal New Ventures Conference (MNVC) held in October. This seems like a natural course, with extremities and sports medicine being high-growth segments of orthopaedics and innovations in digital health and supply chain routinely mentioned as solutions to complex industry challenges.

The sentiment that we took away from the discussion was optimism about the number of investment opportunities available, and about orthopaedics as a whole. Here we recap panelists’ thoughts on investment priorities.

The panel:

  • Ben Joseph, President & General Manager, Mend Medical
  • Mike Mogul, President & Managing Director, HealthpointCapital
  • John Warmath, Senior Director, Global Business Development, Wright Medical
  • Gary Stevenson, Co-Founder and Managing Partner, MB Venture Partners
     


DELIVERY MODELS

Healthcare investment firm Mend Medical launched at MNVC. President & General Manager Ben Joseph said that the firm is interested in post-revenue, pre-profit companies that address systemic problems in healthcare.

When asked which segments within the musculoskeletal space will attract new money, Mr. Joseph mentioned sports medicine and extremities and honed in on advancements in delivery of care.

“As I think about [industry] issues, I think about delivery model innovation. That’s the area that will attract a lot of money—supply chain, logistics. There is a lot of inventory sitting consigned all over the country. Companies that take a hard look at fixing this will attract a lot of interest from Mend and other funds looking for the same opportunities.

“As I think about diagnostics, the cost is going up and up and up. Anything that can deliver data firmly will attract money. We know that the economics of healthcare are changing; we know as procedures go from hospital to ASC, companies that can think about the specific needs of ASCs will win in the new healthcare economy. Those areas will attract capital.”


DIGITAL HEALTH

HealthpointCapital announced in October that it closed $100 million for its fourth fund. The private equity firm’s target for the fund is $500 million, which will be invested in eight to ten growth-stage companies.

Mike Mogul was asked what technologies interest the firm, and how they plan to invest capital. He said that Healthpoint considers what’s going to be attractive to large companies three or four years from now, and that includes digital health and services. 

“Seven or eight years ago, no one saw that digital health was going to come and change our world of musculoskeletal healthcare. It’s going to change the path patients take, it’s going to change the path of care in hospitals, it’s going to change how people get paid; it’s going to provide a variety of opportunities that, mixed together with devices and services, will stand alone on their own.

“There are services, as well, that will come in and look at the entire patient population as opposed to a single episode of care. As everyone sees with the world that we’re playing in now—with Amazon, Apple and Google—big firms and big systems are figuring out who is going to win and what that winning structure looks like. Where is care going to be delivered?

“We’re going to see change happen faster, not slower. The large companies are hungry for growth. If we can help companies grow quickly, we will.”


MERGERS AND ACQUISITIONS

Wright Medical has maintained an active merger and acquisition (M&A)—and divestiture—strategy over the last decade as it has boosted its extremities portfolio and shed its large joint reconstruction products. The company’s most recent purchase was Cartiva and its premarket approved Synthetic Cartilage Implant.

John Warmath was asked his predictions for future orthopaedic industry M&A.

Recent activity demonstrates that large- and medium-sized OEMs have prioritized companies that have secured regulatory clearance (or approval) and revenue, Warmath explained. That trend is expected to continue across orthopaedics and healthcare overall, as companies seek to forgo the initial R&D and regulatory processes.

This strategy should provide small companies who do their homework with opportunities to exit. It may sound basic, but Mr. Warmath said that the companies he is willing to take a call from are the ones who know what type of investments the potential acquirer is looking for, and people who ask the right questions and can share how their product fits into Wright Medical’s portfolio gaps.

“There are a lot of great products out there, but we may not have a need in our portfolio,” Warmath said. “If you’re thinking about incremental changes to products that we already have in our portfolio, we’re probably thinking about those [changes], too. From an R&D standpoint, we probably have something in the works. If you can think about where those gaps are that we haven’t had a chance to fund yet, those are opportunities.”

We interviewed panel moderator and MNVC organizer Gary Stevenson prior to the conference. He noted that the startup environment is healthy, but there remains a shortage of venture capital. When we asked what excited him most about today's musculoskeletal market, the Co-Founder and Managing Partner of MB Venture Partners called out new technology, new financing and people.

“To start with, there is the technology side of our business. There are so many new and emerging ideas in the diagnosis and treatment of musculoskeletal conditions. Entrepreneurs pitch us every day, and it is energizing to see what lies ahead on the near-term horizon. Perhaps the convergence of traditionally high-tech (hardware, software, etc.) solutions improving the diagnosis and treatment of musculoskeletal conditions is what excites me most.

But ultimately, it is a human business. Every day, I work with the entrepreneurs who are running the startups we have chosen to partner with. Nothing is more exciting or more contagious than the enthusiasm and passion of our entrepreneurs.

On the financing side, I am encouraged by the increasing M&A interest of the major strategic buyers. And I think the public equity markets seem more welcoming to worthy medical device startups. Everything in a venture capitalist’s portfolio is for sale; it’s just a matter of price. So it is encouraging to see increasing activity for exits."


Carolyn LaWell is ORTHOWORLD’s Chief Content Officer. She can be reached by email.