Investment in medical devices rises in the second quarter

For some companies, the pandemic has been a tailwind. Chinese life sciences instrument company MGI Tech, which in May disclosed a more than $1bn Series B financing, says scientists have used its sequencing technology for tasks such as decoding the new virus’s genome and tracking and analysing virus mutations.

Similarly, San Diego-based Cue Health, which disclosed a $100m Series C round in June, secured emergency-use authorisation from the US Food and Drug Administration for its molecular point-of-care Covid-19 test.

Generally, opportunities for medical device investment remain strong, said Steven Almany, a managing director with medical technology investor BioStar Capital. But device companies in the firm’s portfolio have had to extend their time frame for completing clinical trials because hospitals had to cut back on elective procedures, he said.

BioStar in some cases has joined insider venture financings for portfolio companies seeking to avoid the lower valuation they would likely have to accept if they sought funds from new investors. Insider rounds are part of the reason funding tallies remained high last quarter, Almany said.

“It’s a game where everybody’s watching, waiting,” said Stefano Ciampolini, a managing partner with medtech and life sciences investor MedScience Ventures. “It’s a bit predatory at the moment.”

Merger and acquisitions deals also are taking longer, as strategic acquirers seek to renegotiate terms agreed to before the pandemic and add performance-based conditions that affect the price paid when the merger closes, he said.

“Past performance and future expectations are being scrutinised much further than they would have pre-Covid,” said Brian Bock, a managing director with investment bank Lincoln International. “It’s natural for buyers to be a bit more cautious.”
Buyers and sellers are getting more creative about conducting due diligence through video conferences and in-person meetings, and companies are also gaining more clarity about the impact of the pandemic on their businesses, which should help deal making in the second half, Bock said.

While restrictions on in-person medical consultations have slowed certain companies, they have helped others. Eargo, a California-based start-up that just closed a $71m Series E round, sells hearing aids that sit inside the ear canal – instead of behind the ear, where they are more visible – online and over the phone.

Eargo was growing before the pandemic, but the crisis has accelerated the pace, as many older people have grown more comfortable with telecare visits and less willing to go to a clinic to get hearing aids, chief executive Christian Gormsen said.

Source: Wall Street Journal

By Brian Gormley