"In 2008, before the crisis, there was almost too much money in the industry," says Windhover Information Inc. managing director medical devices David Cassak, talking to "Globes". Today, funds look like victims of the crisis, but during the financial bubble, they also shared in the feeling. There were too many companies and some of them were not carefully managed.
Cassak was in Israel to attend the 4th Healthcare Innovation Summit, organized by Israel Life Science Industry (ILSI) and Tel Aviv University's Lahav Executive Education Programs, and led by Tamir Fishman Ventures managing general partner Dr. Benny Zeevi.
Cassak said, "Today, we see a degree of recovery, and investors in funds are beginning to look for funds to return to." However, he does not believe that all funds will recover, simply because they failed to achieve enough good returns. "Total investment in venture capital fell. Happily, the medical devices share of the pie has remained more or less the same, even though there are companies which could have obtained financing in 2007, but not in 2011."
He adds that the venture capital funds that recover will have to deal with a new world in the medical devices market. "Due to the consolidation of buyers and prevailing uncertainty in the industry, exits almost never exceed $100 million any more. It is necessary to be cautious and invest no more than $25-30 million in a company in order to get the hoped-for return."
The problem is that the US Food and Drug Administration (FDA) has tightened procedures for obtaining K510 fast track approval for medical devices, and it can now cost a company up to $40 million. This is even before marketing expenses.
Cassak says that there has been less medical innovation in the past few years. The number of products approved under the K510 process has fallen. In addition, time to exit has lengthened from 6-7 years for a well-run US company to an average of nine years today. Venture capital funds are also investing in products at later stages of development.
Above all, is the healthcare reform of US President Barack Obama, which is supposed to lower prices for medical devices when they reach market. The reform might even initiate a vicious circle, by causing large medical device companies to buy more carefully, thereby reducing exits.
"We don’t yet see a fall in prices for products on the market. For now, it's only psychological," says Cassak. "It's possible that now, in the wake of the midterm elections and the Republican majority in the House of Representatives, the healthcare reform will slow and weaken. If in the past it was clear that it would be possible to charge premium prices for a new and better product, that's no longer clear."
"Globes": What are the hot fields in this freeze?
Cassak: "The usual sectors, orthopedics and cardiology, are still holding on. Ophthalmology is also strengthening and diagnostics has developed. I'd actually advise investors to look for the lukewarm sectors, because that's where the opportunities are."
Which Israeli companies seem promising to you?
"There are so many of them, in cardiology, ophthalmology, urology, and gynecology. Lumenis Ltd. is making a strong comeback; Given Imaging Ltd. (Nasdaq: GIVN; TASE: GIVN), despite its limitations, is marketing sexy technology; Biocontrol Medical Ltd. and Brainsgate Ltd, which are based on inventions by Yossi Gross, are telling great clinical stories, but it's hard to know how the market will receive them; Cornidus Vascular Robotics Ltd., co-founded by Dr. Rafael Beyar, has developed a nice robotic device and will reach the European market.
"Most large companies hold the Israeli medical devices market in high esteem. I'd take a risk and say that there are companies around the world that consider it even more interesting than the US."
Published by Globes [online], Israel business news - www.globes-online.com - on December 23, 2010
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