State of the Medtech and Venture Markets | LSI USA '25

Etienne Nichols  0:00  
My name is Etienne Nichols. I work with Greenlight Guru. I'm also the host of the Global Medical Device podcast. Before I get too far, I'm going to kind of explain what we're going to do. I work mostly with quality regulatory so I was curious if I could get a show of hands of how many people just love regulation? Okay, that was a thumbs down. I didn't even get a positive one. I got a negative one. Okay, I thought that might be the case. And so I'm going to present very quickly, a few things from our state of the medical device industry from that perspective, and then I'm going to give it to Jon. He's going to talk about the economic and how that bubbles up and kind of affects some some economic things. But why don we just introduce ourselves real quick?

Jonathan Norris  0:48  
Great, yeah, happy to start so. Jon Norris, I'm a managing director with HSBC Innovation banking. My career had 18 years at Silicon Valley Bank, where I was managing life science, venture relationships and working with venture debt, et cetera. What happened? Happened in 2023 a group of us left SVB to come to HSBC to build a brand new division, sort of with that same ethos of helping early stage companies. So I manage venture relationships. I also write a paper that comes out twice a year that really goes into depth around where the dollars are going within the healthcare venture industry, Biopharma, med device, tools and diagnostics, health tech. But then what sector? What indication a little bit around modality, pre money valuations, post money valuations, active investors, M and A IPO gives you a really good holistic sense of what's happening in the industry, but also the context around why that's happening. So we're gonna talk a little bit about that today, and looking forward to it. Thanks. 

Etienne Nichols  1:47  
Okay, and my name is Etienne Nichols. I already told you who I am. I'll just get my part over with so we can move on. But if you're interested in looking at the medical device industry report, so obviously, John, I love his reports. We also put on a report every year where we enter, we try to interview over 500 medical device professionals from the quality and regulatory and product development realm. And so these are kind of the things that we've pulled together from that, from that report. So if you're interested in getting the full report, passing it on to your team, feel free to check that out, one of the main things that we found, and I'm just gonna make sure, because my slides have all changed a little bit. It's too small to read, I suppose, but we've, we've divvied up these 536 professionals and their their feedback based on commercialization versus pre commercialization. Maybe they don't have devices on the market yet, and usually we go to the top, but I would actually point to the bottom. The biggest difference I saw, the biggest difference in the data was what they were focusing on from a from a standpoint from commercial versus not is getting to market, from a brand standpoint versus a commercialized product. They were focused more on the customer centric, and that's going to come out a little bit later. As far as how that impacts things. You have a thought, no, okay, yeah, I have about five or six slides, so we'll talk a little bit about more about that. Most of us know that the regulatory environment is changing in 2025 there's a, you know, the first day I was here, three people told me, I promised I wasn't going to talk about politics, and so I guess I'll make the same promise. I don't know, but we're going to talk about the things that we learned from November and December, from our interviews with these 536 and a lot of what is happening is really just confirming the results that we've already found, making them even more extreme. What we found was some of the larger companies that we interviewed, 46% of them said that they were halter halting new hiring. And there's a couple of different nuances to this. A large number of companies were were halting new hiring. A lot of them were pivoting more to trying to utilize some AI tools for some of the things that they're using, and that trickled down even to the smaller companies where they previously in previous years of this report, this was the opposite. They're looking for bigger growth, but this was a much more constricted market as the expectation for 2025 and we've only seen that even be confirmed for as the months have gone since the since the election, even the preparedness gaps. Some of the biggest preparedness gaps for medical device companies is inspection readiness. That's one of the biggest concerns for both for medical device companies. One of the reasons for that is the regulations are changing, particularly from the FDA, the QM Sr, if you're familiar with quality management system regulation, system regulation that is coming in 2026 they haven't even decided how they're going to inspect companies. The original technique is going to be changing, is the expectation. And so with changes at the FDA already happening, that's even more in flux. So that's a concern. We. What's going to happen in the future, and I'm going to try not to be the doomsday guy, and maybe John can bring us back out of that, and he actually has a bottle of wine to give away for anybody who's really depressed. But the funding is another thing that's really is one of the biggest struggles right now for clinical trials. That's one of the biggest issues that a lot of companies are facing. We go into much more depth and detail in the report, if you're interested in looking at this at the end, the last thing I'll mention here is the remediation activities. That the amount of time spent on remediation, based on commercial versus post commercial is it's a, it's a huge number of hour change. So 17 hours spent on average for remediation. If your pre commercial and post commercial is closer 5060, hours is pretty, pretty big gap, pretty big change. And part of that is due to recognizing that the issues are, are there you? You see the new issues. See the actual issues once you hit post market. If you're interested in checking out the report, feel free to use that QR code. Ask me afterwards. I'm happy to share a little bit more detail. I'm gonna let's talk about how this bubbles up and affects some of the economic things.

Jonathan Norris  6:14  
Yeah. Great. Thanks. Etienne, really, really appreciate it. You know, there's a lot of things that are going on within the healthcare venture industry. And my thought for this workshop was to give you some perspective as to what's happening with some context as to why and where we think it's going to go, but to try and do it in as fun a way as possible. And so I'm going to ask everyone to make 11 decisions in this room today, and whoever has the most right of those 11 is going to win this very nice bottle of Etude Pinot, one of my favorite Pinots that I got delivered from Bev mo this morning, then got lost. But they they found, they found a resort. And so we're going to put it into a quiz, because I think a quiz is kind of fun. And so what we're going to do, and again, you know, I'm at HSA, HSBC, Innovation bank. If anyone wants to talk about just a bank account and venture debt and other stuff, just hit me up. I'm happy to talk about it. But again, what I also do is put the report together, and that's really what we're going to focus on today. And so, you know, we're doing it in a quiz. There's actually 11 quiz questions. You're not allowed to use the internet. It's going to be A, B, C or D, for the most part. So you just have to remember what choice you made and how many you get right. Fair. Okay, so the first question, so think about venture healthcare, investing in the US and Europe, and you think about what happened in 2023 2023 was a really difficult year. You know, you're on the downturn. That happened in the second half of 22 IPOs were kind of gone. Investors were super worried about valuation. They weren't doing new deals. They were trying to portfolio triage their existing portfolio. But 2024 was a better year, and things were up, and we're up 30% overall in if you look across the healthcare sectors that I cover, which is Biopharma, med device, tools and diagnostics and health tech. So in the US and Europe, Biopharma was up 33% versus 2023. DX tools were up, 22% health tech was up 17% the question is, med device in the US and Europe, venture funding into companies? What was that? Was it? A down, 5% B up, 5% C up 15% or D up 25% so I know it's kind of hard to see, so think a down 5% B up 5% C up 15% D up 25% so just get your answer in your head and remember it. And so the answer is, C, it was up 15% $7.5 billion in invested into device companies in the US and Europe last year, which was, you know, I think obviously bigger than what we saw in 2023 device is really sort of a steady Eddie sector. You don't get too high or low. I mean, obviously you think about health tech and the amount of money and the valuations that we saw in Health Tech in 2021 that really didn't happen as much in device. We were only down about 25% from the 2021 numbers, but something to think about. While dollars are up, the number of deals were down, so up 15% but less deals. All right, I think he got the answer wrong. So he's already leaving. There's 10 more. There's 10 more. You don't have to go so yeah. So what's interesting on the device side is, yes, there's a lot of money still going into the device sector, which is great, but the top 10% of the deals got about 50% of the capital. So you are seeing some really big deals that are happening a little bit later stage, which we'll get into in a second. So how. Anybody got that right? I'm sorry, a few there's still time. No one's gonna get it all right. I'm guaranteeing, Okay, second question. So now let's talk about early stage, sort of first financing. My definition is the first dollars in of at least $2 million into a company. That's my first financing definition. It could be labeled a seed. Could be labeled a Series A it's your first financing that raises at least 2 million and so if you think about that, about a billion dollars was invested in the first financings in to Vice last year, which is great. That was up 34% over 2023 yet when we looked at the second half of 2024 we got a little bit concerned about the run rate. So if you think a billion, so 250 a quarter second half was less than that, the question is, what was the run rate in the second half of 2024 for first financing? Was it 195 million a quarter a, 158 million a quarter B, 110 million a quarter C or 94 million D. So in your mind, 195 158 110 or 94 so keep that in your mind, and the answer is 158 million. And so if you actually annualize that number, it comes out to probably it's the worst in the last five years. So it certainly is cause for concern. And I think the issue is it's very difficult to raise a Series A. If people are super afraid of raising their series B, very difficult to find Series B investors out in the market. So the series A investors are really hesitant to put one money to work. And when you think about their fund status themselves, the venture funds have to go out and raise money, right? And so they have to be very careful about what type of returns do they have to go back out to the LPS that are giving them money to go and raise their new fund? And so what we're seeing is a slower pace of investment, and part of that is what we're seeing here. On the good news side, I've already gone through the data for January and February, and if you combine that, it's 186 million in 17 deals just in January February. So already a good start to q1 I think we can get into what happened over the last three weeks, and what does that mean going forward? I'm happy to talk about that, but after our quiz is over, so how many have two? Okay, how many have one? All right, there's still there's still time, there's still time. Okay, third question, so let's stick on early stage. Where are most of the dollars going? By indication, is it a noninvasive monitoring sort of sensor based technology. Is it two imaging, which is a piece of equipment with some SAS probably. Is it C eurogyne, sort of men's women's health devices? Or is it orthopedic? And if you look back at 2023 the number one area for early stage was imaging, number two was orthopedic, and neuro was number three. So is it non invasive, monitoring, imaging, urogyne or orthopedic? Have that in your mind? Answer is euro guy and really help. Like, Amber, uh, raised $100 million round last year. That was a big help. But I'm also seeing a bunch of urogyne, like imaging type of companies and other things that doesn't necessarily fit on the device, or the like the device eurogyne section itself that we're seeing as well. So that is a really intriguing area where we're seeing a lot more activity. Noninvasive monitoring. Was number two, which actually had a big jump up from what we saw in 2023 orthopedic was up. Neuro was solid, imaging was down 50% which I think is interesting. And you're seeing, is it an issue around who's paying for that and how you're actually gonna get into the hospital? Also cardiovascular, obviously, very much PMA focused. We're not seeing a lot of early stage investment. There was one deal that I categorized That was pure cardiovascular that was its first financing of $2 million for the whole year in the US and Europe, which is really sad. On to Question four and five. Anybody have three so far? Okay, sound hot two, kind of one, all right? Still, again, still time. This is a two fer. So now we're talking all of device, all of device, so early, late stage, but still private, right, private venture back deals. There were 26 venture back deals that raised at least $50 million in 2023 right? And that was a down year. So if you think about 2024 How many device deals raised a round of at least $50 million in the US and Europe for the year? Is it 33, 47, 54, or 60 and then the bonus? Question is, what indication had the most $50 million rounds? Was it cardiovascular, neuro noninvasive monitoring, orthopedics or vascular? Okay, you guys have that in your mind, and the answers are one. There were 47 deals of at least $50 million last year in device, which is great and neuro led by indication with noninvasive monitoring behind that, orthopedics, cardiovascular, vascular, you know, definitely, as we said, 10% of the deals are grabbing 50% of the dollars. And it's really, you know, these are later stage Series C to D sort of rounds that are funding 510, K commercialization deals or pivotal or late stage development on the PMA side, but it's good to see that type of activity. And what I also think is interesting, as you look at these $50 million deals, who are the investors that are coming in? It's not just sort of the growth investors and maybe private equity coming down, but also corporates are coming in as new investors in these late stage rounds, which, again, is great for the sector and traditional venture, you know, maybe not good for early stage because they are being a little bit more strategic around their fund and maybe going into these later stage deals instead of doing series A but those are the trends that we're seeing out in the market. All right, so we're, we're, we're five in? Does anybody have five? Okay, good. I didn't want to make it too easy. Now we're starting to get a little bit the rest will be a little bit easier, I think so second. So if you think about the 75 million or bigger rounds, okay, there were 20 of them in 2024 How many of those were focused on 510, K commercialization rounds? So you got your clearance, you're ready to go to market. Maybe you already have a little bit of revenue, and you're raising a round to really spur aggressive sales and marketing. Was it 11 deals, 13 deals, 16 deals or 18 deals. So how many of the top 20 were 510, K, commercialization rounds? And the answer is 1111. Of the deals were 510, K, commercialization the 75 million or bigger. But what's also interesting is you had seven of those deals that were funding either PMA pivotal trials or R and D, like a neuro link, et cetera. So good activity, both on the commercialization side for 510, K sort of clearance opportunities, but also you're seeing late stage pivotal trial funding for PMS, which I think is really good. Okay, off to seven and eight. Now we're getting into the M and A side. I figure the last couple questions gives you a sense of what the exit environment looks like out there. There were only so if you think about 2023 there weren't a lot of exits in device. But when they were, when they did happen, actually, the deal size was pretty big. So my data set is at least $50 million up front to be an M and A exit that I track. So that gives you a sense of what the data looks like. The the median upfront deal value in 2023 was $400 million which is solid, very solid dollar amount. It was 2x bigger than any other year previous. And so the question really was, with that type of dollar size, you know, really set up 2024 for a strong M and A environment, yet the first half was really flat. We only saw three deals in the first half of 2024 but yeah, you did see some more activity in the second half of the year. So how many deals were there that were at least $50 million up front that you could sort of track in the market for 2024 were there eight deals, 12 deals, 14 deals, or 16 deals. And then the bonus point is, if you look at the median upfront value of those deals, was it bigger than 250 upfront or lower? So with that in mind, answer is, there were 14 M and A deals of at least $50 million in the device sector last year, and the median upfront was 288 million. So it's over 250 million. And if you think about the folks that are acquiring yet, Stryker did three, Edwards did three, Hologic did two, cardiovascular had five deals. And if you look at the median upfront on the cardiovascular side, it was $500 million was the median up front. So really strong cardiovascular even though you're seeing no investment in early stage, that's still one of the biggest areas for exit. All right, now we're at home coming to home stretch, 910, 11, these are the last questions. And then we'll get into any sort of questions you guys might have on what's going on in the market. And this sort of goes into, you know, M and A is very different. When you think about it, between a 510, K cleared deal and a company that's going for de novo slash PMA, it's the trajectory tends to be different, and the numbers tend to be different. And so this is a three part question, and before we start like is anybody have. Five, five points or more. Okay, so we still have like all, right, so this is all this. This is a three, three point question. So question is between 510, K clearance companies that get to exit versus a PMA company that get gets to exit, which company one takes longer from their first round of at least $2 million that they close, so not from founding, but when they raise their first real equity infusion. Which takes longer, 510, K or PMA? Second, which company, which pathway takes more money? Is it PMA, or is it 510, K, and then finally, which area has the bigger upfront on exit? Is it PMA or 510, k? So, three part question, one, which one takes longer to get to exit? Which one takes more money to get to exit? Then the last is, which one actually has the bigger upfront payment. And everyone have that answers in your mind, answer is PMA for all. So in terms of time to exit the PMA is longer it on the last looking at the last three years data, 9.1 years from the close of the first round of financing, and you would think maybe 510 k would take a lot less time, because getting to clearance is a lot quicker, but those companies have to then raise a commercialization round. And so they have to prove that the dog's reading the dog food before acquirers typically want to jump in. And so even for 510 k, it's 8.6 years. So these are long periods of time that investors are working with companies to get to exit dollars in PMA averages $71 million to get to an exit 510, K, 42 so a little bit less. And obviously it comes down to your company. Do you want to pursue an IPO or not? Are you going to raise a mess round of 70 $500 million and sort of push through and think about a public market or not, or are you really going to be Ha, keep that optionality for an M, a, and then finally, the upfront, PMA, median upfront, $350 million for those exits for 510 k, 165 million. Most of the 510 k has more opportunity for earn out than PMA. Typically, most of the PMAs are the upfront is the total deal value, but sometimes it does get split out. So that is the final question. And we sort of have lots of time for questions. Should you all have it? But question Is anybody before we get to questions, I want to get rid of this wine. Does anybody have 11 points? Anybody have 10.9 Whoa, anyone have? Anyone else have nine? All right, congratulations. The Yeah, the the only, the only ask is you're not allowed to open it like in the hotel, I think, or else, or else I get arrested, or something like that. So, so hopefully that sort of gives you, like, a perspective, congratulations again, and thank you. I yeah, hopefully it gives you a perspective what we're seeing in the market again. We're happy to chat about what's happening now, I think, you know, over the last three weeks, and we didn't want to, like, get, you know, too, too political on things, it's more about what's happened with the FDA. And what does that mean? Because when you do think about companies that are venture backed, most of the time they're cash burning, and most of the time, the value inflection points are predicated on some sort of regulatory milestone, right? You hit a milestone and that unearths your ability to go out and raise a new round.

Jonathan Norris  23:51  
And so the question really is going to be, what happens with everything that's happening now? Does it mean that time frames are going to get pushed out? Does it mean that? No, instead, they're just going to push things through faster. Nobody knows. But if time frames get past, passed out and get longer, and you're not able to feel comfortable about the regulatory milestone dates that you have that are coming up, that's going to severely impact the venture ecosystem, like, in my mind, I feel like 2025 is going to be a pretty good year, and should match 2024 that was before the last three weeks. And I think you know, with what happened out there, it really is going to start. If you start hearing whispers of of, you know, regulatory dates that are passing and either getting pushed out or not hearing anything, then the venture folks are going to freak out, right? Because not only is it going to freak them out on potentially doing new deals, but now they have to go back and look at their entire portfolio, figure out when those value inflection points are happening. What's the cash burn of those companies, and do they need to raise more money to get to those value inflation. Points or not. So I think over the next month or so, it's going to be a very interesting a bunch of proof points that are going to come up with companies that are approaching regulatory interactions, and we're going to see what happens. And so I don't know the answer to that, but that is my that's like my worst case worry. But if you do look at January and February data. It's very strong for continued support of the device sector. And I will say that maybe the parting shot is that there's never been sort of more pools of capital available to support companies between hedge funds and crossover investors and growth investors and private equity folks coming in and and you know, your corporate folks, as well as traditional venture there's never been more pools of capital support companies, but everyone's afraid of the time to exit, and they all want distributions. And so you really have seen a push to later stage, and it's at the expense of early stage. But you know, again, I think if there's anything about this industry that I take away is that it, yeah, there's a lot of strong resilience within this ecosystem, and it's never been easy to raise capital. And you know, the good news is we have, you know, conferences like LSI, where we had a ton of investors coming in that are actually sticking around, and you just got to continue to plug away. You build those relationships. And I think relationships is such a strong word and very apt for the device industry, because this is, this is what you do over time, even if it's not the right time for these investors, you tell them what you're going to do, and you show you do it, and you build those relationships. So maybe I'll stop there. We're always happy to answer any questions you all might have, and hopefully this gave you some perspective. I know we had, yeah, but I think we and actually, if you don't mind going to the mic because they're recording a session and so then they can, they can record the question as well, but always invite anyone who wants to come in ask questions.

Audience Question  26:51  
Is this on? Yeah, it is okay. I was just a little surprised at the Delta on time to exit between 510 k and PMA only being half a year looking at the details of that data. Can you shed light on why that is so? 

Jonathan Norris  27:07  
Yeah, little, it's a great question. And what we've shown in data over time is, again, on 510 k, you got to get the clearance, and you have to raise a commercialization round, because the acquirers are really looking to be plug and play for 510, K, and they want it to be as close to being a creative as possible. You know, the downside of that, unfortunately for the device side, is you have to hire all the sales people and show that, and then you get acquired, and they and they already have the sales people. It's very frustrating. I think on the PMA side, what we have seen over time is that the time for the exit for PMA typically is with data in hand from the pivotal trial study, but before approval is time and time again, we see consistently, or maybe it's at approval, but you're you hadn't had to raise a commercialization round yet. And so that is, I think, why things are sort of winnowing. On the 510, K side, you have to prove that revenue ramp and get to whatever the strategic say is the magic number for getting them excited about adding that product to their portfolio. But on the PMA side, when you have that data in hand, it's pretty apparent what the answer is going to be. And that's when the strategic sort of circle around and strike and so that that's the reason why things kind of get compressed together. You know, obviously, you know, there the wrinkle on that is whether you want to pursue an IPO or really want to think about an M, a, typically on the device side, M and A is, that is the number one sort of thought process. But when you have that opportunistic chance to go IPO. You take it. And when you look at folks like shockwave and you know, it can, it can prove out really, really well. So, but on the other side, you can see a bunch of device companies that went public over the last four or five years that are down 80% and so. So the issue is, you go public, you miss a quarter, and you're really in trouble. But, yeah, good. Good question. Other questions, did you want to add anything? 

Etienne Nichols  29:05  
Well, just from the regulatory I would just say one thing, because you're right absolutely with the M, a, but if taking a step back from the regulatory itself, what we found is it, when you only look at submission, it's, it's 7.6 years to 9.3 so that actually 7.6 years for a 510, K, 9.3 for a PMA, and then, like you said, that commercialization is going to push that even further. I think that might be the discrepancy in that they might be thinking about,

Audience Question 2  29:30  
Hey, Jonathan, my question was very related. I was just wondering if you had data on de novo on that same spec.

Jonathan Norris  29:36  
I do. The number is small, yeah, you know. But I will say, on that note, it's a great question, and I say if anybody has any questions on any of the data that you saw, you can hit me up on LinkedIn or send me an email. I am happy to provide you the background data of that. The only thing that I won't include are non disclosed deals that somehow I found that maybe the answer to that. Use in getting the media number out there. But if you want to dig into any of those numbers and say, oh, what kind of early stage cardiovascular investments have we seen over the last two years, I am happy to engage and send you some of the data that I have. And the idea being, the more information you all have, the smarter you'll be about the decision making of your company, especially on the fundraising side. And if you have information around the deals that are being done and the investors that are being a part of it, maybe valuation information, and you can have real life examples around pre money valuations, so that when you do have a discussion with investors, you can it's not just, Oh, we did this, but also we did this. Plus, let's look at let's look out in the market. And here's three companies that were either a like or not a like. And here are the valuations, and here's why we deserve, you know, X, but so feel free to always hit me up. I'm happy to talk about it. Other questions.

Jonathan Norris  30:57  
All right, I think we, I think we did it well. I again. We want, we want to. Thank you all for coming. I know this is kind of infringing on lunch too, so we'll let you go out and continue to network. But on behalf of Etienne and myself, thank you so much for for joining us in the panel. I know it's been a long week, and if we can be helpful in any way, shape or form, please do not hesitate to contact us. So thank you very much. 

Etienne Nichols  31:20  
Yeah, thank you all.