The growing interest of venture capital in the medical technology industry in Texas


North Texas is a growing player in the medical technology industry and is more attractive than ever to venture capitalists. New research from Deloitte highlights industry growth in Texas and where private equity dollars are flowing.

the to research found that venture capital funding for medtech has grown 67% across the country since 2017, funding $20 billion to medtech companies over that time. Texas received $555 million from the investment, the fourth largest in the nation after tech powerhouses California, Massachusetts and New York. More than half of all medical technology companies are based in the western United States, while only 8% are in the south.

Dallas, however, does more than carry its weight. A world-class research institution provides guidance and a pool of talent ready for potential startups and having multiple successful companies also helps. Another factor that makes local businesses attractive to investors is North Texas’ growing population. The growth of Pegasus Park, Tech DFW, Fort Worth’s Medical Innovation District, and the continued success of medical technology companies deploying UT Southwestern have made North Texas a key player in this increased investment, despite the massive medical center in Houston and Austin’s technological prowess.

Most medical technology companies depend on private equity for their existence. Of more than 15,500 medical technology companies, 94% are in pre-revenue or no revenue. According to Macro Policy Advisors for AdvaMed, only 130 companies generate more than $100 million in revenue each year, and 82% have fewer than 20 employees.

So where is all this money going? The research found that even though venture capitalists promote medical technology, they keep their money until later stages of the business development process. Late-stage diagnostics and digital companies are gaining a greater share of venture capital money, while seed and Series A funding continues to decline, as it has since 2017. Invest Later in-game means the companies likely already have some regulatory approval. As a result, they can avoid lower returns, increased time to market, and less return of capital when investing early. The shift to later-stage investments has also increased the average deal size from $6.2 million in 2012 to $25 million in 2021.

In vitro diagnostics and health informatics are the top targets for venture capital funding, and artificial intelligence technologies lead all venture capital funding in medtech. The pandemic is almost certainly a factor. The shift to digital and remote health has attracted massive funding, and the focus on vaccines due to the pandemic has also influenced record investments in the pharmaceutical and biotech industry. The average IVD contract has grown from $6.2 million in 2012 to over $28 million in 2021.

“Many of these developments have broader applications,” says Dan Odom, a local Deloitte partner. “They can use this technology on a wide variety of subjects that need treatment. Scalability, high unmet need, and reduced schedule and cost structure are noteworthy for investors.

Image and data courtesy: Deloitte

Much of the money goes to companies that identify health issues rather than solving them. Dallas is home to a diagnostic darling at Caris Life Sciences, which has raised more than $1 billion in total funding over the past three years. Its latest development is a liquid biopsy that can detect many cancers via a simple blood test. Diagnostics like this can reduce future healthcare costs by catching costly conditions early, when they are easier and cheaper to treat, and reducing overall healthcare costs has been another focal point. of the CV.

Although investment has rebounded since the onset of COVID-19, it has changed investment priorities. Technologies that focus on elective procedures have come under negative pressure due to care backlogs, clinical trials have been difficult to complete, and supply chain issues have impacted many companies looking to transition to higher level with larger investments.

Pharmaceuticals still monopolize most of the transaction value due to higher returns. Only 5% of global deal value went to medical technology companies in 2020, while 13% went to pharmaceutical companies. Deloitte found that medical technology companies achieved 1-2x returns, while the pharmaceutical industry’s return could be 3-4x or more. The development time for these products, the regulatory hurdles they must clear, and the difficulty of getting them paid for by the Centers for Medicare and Medicaid Services and private insurers can all be barriers to quick returns for private equity firms. risk.

These funders are looking for companies that address unmet needs with large patient bases. These organizations address the cost of care and those who are strategic in developing, protecting, marketing and growing their products.

“The real winners are those who can take an idea, focus it on a question and problem, and then scale it,” says Odom. “There is a lot of thinking about how to direct research and development towards monetization in a way that makes sense and can improve the quality of care.”

Read the full Deloitte report here.


Will Maddox

Will is the editor of CEO magazine and editor of D CEO Healthcare. He wrote about health care…


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